Capital Gains Tax on Land Title Transfer: Do You Include the House or Just the Lot? (Philippines)

Executive summary

Capital Gains Tax (CGT) on the sale or transfer of real property classified as a capital asset is generally 6% of the higher between (a) the gross selling price and (b) the fair market value (FMV).
“Real property” includes both the land and its permanent improvements (e.g., a house). If the house is included in the sale, it is part of the CGT base.
If only the land is sold and the improvements are expressly excluded (and supported by separate tax documents), the CGT base is typically the land alone.
CGT is ordinarily a seller’s tax, but parties may agree who shoulders it as a matter of contract (this does not change who the taxpayer is in law).
Transfers without sale (e.g., donations or inheritance) are not subject to CGT; other taxes (donor’s or estate tax) apply.
Properties used in business (ordinary assets) are not subject to 6% CGT; gains are subject to regular income tax (and possibly VAT), though DST and local transfer taxes still apply.

I. What CGT covers—and why the house usually counts

A. Real property and “improvements”

Under Philippine law, real property comprises land and attachments that are permanent or intended to remain attached—houses, buildings, and other improvements. When computing CGT for a sale or transfer of a capital asset, the house and the lot are generally taxed together if they transfer together.

Key principle: If your deed of sale/assignment covers the house-and-lot, the CGT base considers both. If your deed covers the lot only and excludes the house, and you can substantiate that exclusion (see Section IV), then only the lot is part of the CGT base.

B. Capital asset vs ordinary asset

Capital asset: Real property not used in trade or business, not held for sale in the ordinary course (e.g., a family home or a vacant lot you’ve simply kept).
Ordinary asset: Property used in business (e.g., rental property, office, inventory of a real estate dealer).
- Ordinary assets are not subject to 6% CGT. Instead, any gain is part of regular income, and VAT may apply if the seller is VAT-registered and the transaction is in the ordinary course of trade.

Practical tip: Once a property has been used in business, the tax treatment tends to stick as ordinary for future dispositions unless clearly and properly reclassified under prevailing rules. When in doubt, expect stricter scrutiny.

II. The 6% CGT: base, rates, and timing

A. Tax base (the “whichever is higher” rule)

CGT for a capital asset is 6% of the higher of:

Gross selling price stated in the deed; or
Fair market value (FMV) at the time of sale.

How FMV is determined:

Land: Usually the BIR zonal value (price per square meter × land area). If no zonal value exists, the Assessor’s FMV is used.
Improvements (e.g., house): Generally the Assessor’s FMV of the improvements from the latest Tax Declaration.

When a house-and-lot is transferred, the BIR customarily adds the land’s FMV (often zonal value) and the improvements’ FMV (from the Tax Declaration) to get a total FMV, which is then compared to the gross selling price. CGT is 6% of the higher figure.

B. Who pays and when

Liable taxpayer: Seller/transferor of a capital asset (contract may shift the cost, but not the legal incidence).
Deadline: CGT is due shortly after the execution of the deed (e.g., date of notarization). For installment sales, returns are generally filed per installment received. Late filing incurs surcharge, interest, and penalties.

C. Special exemptions and deferrals

Sale of principal residence (individual): Subject to strict conditions (e.g., timely notice to the BIR, reinvestment of proceeds in a new principal residence within a prescribed period, and once in a set number of years rule), an exemption may be available. Any unutilized portion of the proceeds is taxed.
Tax-free exchanges: Certain property-for-shares transfers that result in control may qualify for non-recognition of gain (no CGT), but documentary taxes and stringent documentary requirements still apply.

Caution: Exemptions are strictly construed. Missing any documentary or timing requirement can forfeit the relief.

III. Other taxes and fees on title transfer

Even when subject to CGT, a title transfer generally triggers the following:

Documentary Stamp Tax (DST) – Usually 1.5% of the higher of consideration or FMV.
Local Transfer Tax – Typically around 0.5%–0.75%, depending on the LGU.
Registration Fees – Payable to the Registry of Deeds based on a schedule.
Real Property Tax (RPT) clearance – Delinquencies must be settled before transfer.
Withholding taxes – Apply to ordinary-asset sales (not CGT transactions).
VAT – Possible if the seller is VAT-registered and the property is an ordinary asset.

These are separate from CGT and generally cannot be credited against it.

IV. When only the lot (or only the house) is being transferred

A. “Lot-only” sale while the house stays with the seller

To exclude the house from CGT computation:

The deed should explicitly state that only the land is sold and the improvements are excluded (or reserved).
There should be a separate Tax Declaration for the improvements (or a clear annotation proving separate ownership).
Be prepared for the BIR to inspect and verify consistency between the deed, tax declarations, zonal value computation, and actual use.

If the paperwork is silent or ambiguous, the BIR may treat the house as part of the sale and compute CGT on house-and-lot.

B. “House-only” transfer on another’s land

A house can be treated as a separate real property if the builder has legally recognized rights (e.g., a building constructed on leased land). In such cases, a transfer of the building alone can be taxed based on its FMV or price, whichever is higher.

Practice pointer: Always align the deed, tax declarations, and actual possession/use. Mismatches are a common reason for audit findings and delays in obtaining the BIR’s Certificate Authorizing Registration (CAR).

V. Worked examples

Assumptions below are simplified to show mechanics; actual treatment depends on the BIR’s latest rules, the specific RDO’s procedures, and complete documents.

Example 1: House-and-lot sale

Lot area: 200 m²
Zonal value: ₱25,000/m² → Land FMV = ₱5,000,000
Improvement FMV (per Tax Dec): ₱1,500,000
Total FMV = ₱6,500,000
Selling price (deed) = ₱6,200,000

CGT base = higher of ₱6,200,000 and ₱6,500,000 → ₱6,500,000 CGT (6%) = ₱390,000

Example 2: Lot-only sale (house excluded)

Same land as above; house expressly excluded in the deed; separate Tax Dec supports exclusion.
Land FMV = ₱5,000,000
Selling price (deed) = ₱4,800,000

CGT base = higher of ₱4,800,000 and ₱5,000,000 → ₱5,000,000 CGT (6%) = ₱300,000

Example 3: Ordinary-asset sale (rental property)

The house-and-lot has been rented out as part of the seller’s business.
Result: No 6% CGT. Instead, net income from the sale is subject to regular income tax (and possibly VAT, if applicable). DST and local transfer taxes still apply.

VI. Documentary roadmap (CGT/ONETT context)

To obtain a CAR and process title transfer, the BIR typically requires:

Notarized deed (sale, exchange, dación, etc.) with clear description of what’s being sold (lot only, house-and-lot, etc.).
Titles (TCT/CCT) and latest Tax Declarations for land and improvements (separate, if applicable).
Identification and TINs of parties; corporate docs if entities.
Zonal value certification (or proof of no zonal value).
Real Property Tax clearance and proof of settlement of idle land tax (if any).
BIR return(s) and payment proofs for CGT (or income tax/VAT if ordinary asset), DST, and any withholding (as applicable).
Other supporting papers (SPA, board resolutions, court orders, proofs for exemptions like principal residence reinvestment, etc.).

Local steps: After CAR issuance, settle local transfer taxes, then proceed to the Registry of Deeds for cancellation/issuance of title, and update Assessor records.

VII. Frequent pitfalls

Assuming the house is “free”: If the deed sells house-and-lot, the house is part of the CGT base even if the price breakdown in the deed allocates little to the house. The BIR will recompute using FMVs.
Vague deeds: Failing to explicitly exclude improvements invites BIR to treat the sale as house-and-lot.
Mismatched documents: Land and improvements must align across title, tax declarations, and the deed.
Wrong asset classification: A property once used in business may remain ordinary; applying 6% CGT can be incorrect and risky.
Missed deadlines: Late CGT/DST filing leads to surcharges, interest, and penalties and delays in CAR release.
Principal residence exemption missteps: Late notice, incomplete reinvestment, or using the relief too frequently can void the exemption (the unqualified portion becomes taxable).

VIII. Practical decision tree

Is the property a capital asset?
- Yes → Go to (2).
- No (ordinary asset) → No 6% CGT; compute regular income tax (and possibly VAT).
What exactly is being transferred under the deed?
- House-and-lot → CGT base = higher of price vs FMV (land + improvements).
- Lot only → CGT base = higher of price vs FMV (land only); ensure house is excluded in deed and separate Tax Dec supports it.
- House only → CGT base = higher of price vs FMV (improvements); ensure legal right to transfer the building separate from land.
Any available exemptions/deferrals?
- Principal residence rules? Tax-free exchange? If yes, prepare strict documentation and timely notices.
Compute and file on time, then secure the CAR and complete local transfer steps.

IX. Bottom line

Do you include the house? Yes—if it’s part of the transfer. For CGT on a capital-asset sale, the tax base includes the land and the house (improvements) when the deed covers both.
If only the lot is sold, and you clearly exclude the house (and can prove it through separate tax declarations/annotations), compute CGT on the lot alone.
Always confirm asset classification, FMVs, and document alignment to avoid underpayment and delays.

X. Quick compliance checklist (seller-focused)

Decide: capital vs ordinary asset.
Draft deed to match intent (house-and-lot vs lot-only), with explicit exclusions if needed.
Secure Tax Declarations (land and improvements) and zonal values.
Compute CGT on the correct base, plus DST, local transfer tax, and fees.
Check for exemptions (principal residence, tax-free exchange) and meet timing/notice rules.
File and pay on time; obtain CAR; complete Registry of Deeds and Assessor updates.

This article provides a comprehensive framework you can use to analyze your specific facts. For transactions with nuances (e.g., leased land with a separately owned building, mixed-use property, or principal residence exemptions), careful document drafting and early coordination with the RDO can save weeks—sometimes months—of processing time.